IMF Predicts Global Economy Heads for `Major Downturn’ in 2009

Oct. 7 (Bloomberg) — Global growth is headed for a “major downturn” next year, as U.S. gross domestic product grinds close to a halt, the International Monetary Fund said in a staff report prepared for a Group of Seven meeting this week.

The U.S. will expand 0.1 percent next year, after growth of 1.6 percent this year, the IMF said in the report prepared for the Oct. 10 meeting of finance ministers and central bankers from the G-7 industrial nations. In its World Economic Outlook in April, the IMF said the U.S. would grow 0.5 percent this year and 0.6 percent next. A revised WEO will be released tomorrow.

“The global economy is entering a major downturn,” the fund said in the report, dated Oct. 4. “Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.”

(ARTICLE CONTINUES BELOW)

The IMF report suggested that the European Central Bank has scope to lower interest rates to help limit economic damage from the financial market crisis. The Washington-based lender said in the note that the dollar is “in line” with economic fundamentals, the euro is “on the strong side” and the yen is “undervalued” in the medium term.

The draft obtained by Bloomberg News indicates changes from the April forecasts. IMF spokeswoman Conny Lotze declined to comment on the figures.

A d v e r t i s e m e n t

Growth will be “particularly weak” in the G-7 countries — the U.S., Japan, Germany, France, the U.K., Canada and Italy, the IMF report said.

U.S. Recession

Global growth will slow to 3 percent in 2009, compared with a forecast in April of 3.7 percent. This year the global economy is expected to grow by 3.9 percent.